18 May 2020
COVID-19 Update: Consumer & Retail Sector Outlook in the DACH Region
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The consumer and retail sector in the German region—the largest consumer market in Europe—will continue to be significantly affected by the COVID-19 pandemic.
While the full effects of the pandemic remain uncertain, we can expect a significant shift in consumer mind-set and behaviour, business models and markets.
Changes in consumer behaviour or…we are all digital natives now
Pre-crisis, the retail sector in Germany was growing by about 2,5% per year, driven in part by the expansion of e-commerce channels. The COVID-19 pandemic has significantly accelerated this trend and driven additional digital adoption in the consumer and retail sector.
In the past two months, restaurants have turned into meal delivery services, fashion retailers have shuttered stores and turned their attention to online channels, and older consumers have started to appreciate the convenience of digital shopping and communication.
COVID-19 has driven significant additional digital adoption in the consumer and retail sector, even in the last non-digital consumer holdouts.
Necessity is the mother of invention
While some businesses are struggling to generate sales, increased demand is overwhelming the operating models and supply chains of others. Whether it is getting essential products onto grocery stores shelves or directly onto consumers’ doorsteps, businesses are having to quickly adapt to a new normal in retailer replenishment, delivery and digital channels.
We can expect this massive disruption to generate innovation, creative solutions and new partnerships. For example, brands with a less significant online presence could find new distribution partners in the retailers that have been able to continue operating during the pandemic, like supermarkets, drugstores and hardware stores. These types of outlets are seeing increased traffic during the crisis and there is untapped potential in such partnerships.
Massive disruption generates innovation, creative solutions and new partnerships.
At the same time, the crisis is drawing attention to the safety, quality and ethics of global supply chains. As a result, DACH companies in the manufacturing and consumer and retail sectors are examining weaknesses and bottlenecks in their supply chains and considering more decentralized procurement and logistics strategies.
Don’t you, forget about me
About two months after the outbreak of the COVID-19 pandemic in Europe, most industries in the five strongest European economies are recording significant losses in consumer interest. A notable exception is the FMCG industry, especially cleaning and hygiene brands.
Other consumer and retail brands are trying to maintain ties with consumers by focusing on building long-term brand loyalty including through community support initiatives and stakeholder engagement. For example, Coca-Cola has redirected its advertising budget into COVID-19-related humanitarian aid for the time being. This sends a message of solidarity to consumers and generates goodwill.
Looking ahead to a post-pandemic future
Not all retailers and manufacturers will survive the economic contraction caused by the pandemic and related social distancing measures. The crisis has already led some companies with weaker balance sheets to file for bankruptcy and many more may do so in the coming months. But when the global economy starts up again, the consumer and retail sector will emerge stronger. Leading the way will be companies that have quickly restructured their offering and adjusted to the needs of their customers during this pandemic.
Most consulting firms predict that the consumer goods sector in particular will continue to see robust growth post-crisis. Based on an analysis of search engine traffic in March 2020, the consulting firm Reply notes that consumer interest increased in fast moving consumer goods (32%), e-commerce (28%) and food delivery services (22%). On the other hand, tourism (-29%), fashion (-24%) and the automotive industry (-18%) have seen the biggest declines in consumer interest.
In the longer term, we can expect some mid-pandemic buying behaviours to be adopted more permanently as consumers adjust to the new normal.
For example, online grocery deliveries are likely to remain a popular option after lockdown measures are relaxed. This behavioural shift will have a huge impact on how consumer and retail sector companies organize their staffing, operating systems, margins, and strategic and financial planning going forward.
Whether a business is suffering from a significant loss of trade or overwhelming demand in this new retail environment, managing through disruption requires leaders who are savvy, intuitive, flexible, creative and adaptable.
Companies need to cultivate leadership at every level that represents a range of reasoning capacities, including practical, proactive, conceptual, strategic and analytical.
There will also be heightened demand for leaders with expertise in technologies like artificial intelligence, robotics and additive manufacturing. Agility is key as companies find themselves reimagining their business models through the lens of this crisis.
If you have any questions about our observations and the lessons we have drawn from the ongoing COVID-19 crisis, or want to discuss your Consumer & Retail career or your organisation’s leadership needs, please don’t hesitate to get in touch.